UK banks could make substantial savings by delaying compliance with the Basel II Accord, according to research by The Cass Business School. The Financial Services Authority is allowing UK banks to choose whether they adopt basic or more advanced levels of compliance to ‘Pillar 1’ of the new accord when it is implemented in 2007. Research into the cost benefits of the two levels of compliance by Senior Finance Lecturer at Cass Business School, Dr Alistair Milne, has shown banks could save substantial amounts of money by setting their own, slower, timetable for advanced compliance. ‘Contrary to the advice being given by many consultants, we advise banks to spend shareholder money very cautiously when achieving advanced compliance,’ said Milne, ‘Eventually all banks will want to do this, but it is more important to do it properly and our research has shown there may be a significant cost saving by delaying until 2009 or 2010.’ Instead of worrying excessively about advanced compliance, banks should focus on their response to Pillars 2 and 3 of the new accord, said Milne, who stressed the importance of, ‘ensuring that their systems of risk management are sufficiently robust to withstand close regulatory scrutiny and that they have appropriate policies on disclosure of risk-exposures and capital adequacy.’
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